Hello, everybody. We're a crowd here in Stockholm, in a wintry Stockholm. Very cold today as well. Quite welcome to this Year-End Presentation. We have a crowd with us on the phone as well. The presentation will last around 30 minutes. Today's presenters are, as usual, Lennart Evrell, our President and CEO, and Mikael Staffas, CFO of Boliden. After the presentation, there will be a Q&A session. We hope to wrap things up within the hour. Welcome.
Good afternoon, and thank you for coming to listen to our Q4 report. The quarter was, as you noticed, a little bit low on production and a little bit high on cost. In addition to that, we have a one-off with the accruals of SEK 125 million for reclamation of old mines. If we summarize, the fourth quarter revenues were SEK 9.7 billion compared to SEK 10.1 billion the year before, basically a result of the lower metal prices. Earnings, excluding the process inventory revaluation, was just short of SEK 1 billion compared to SEK 1.4 billion a year ago. We come back to why this decline is there. Operating earnings, including the inventory change, is greater. As you know, we think that is of less relevance since the inventory revaluation has big volatilities and has no impact on our earnings performance. It's not cash flow generating. We had the SEK 125 million one-off in the reclamation provision. The cash flow was slightly negative, or SEK 480 million negative. We are, of course, in one of the biggest investment cases or periods ever with Kankberg, the gold mine in the final stage and final payments of the Rönnskär electronic scrap recycling.
We are building very heavily now in Garpenberg, the zinc-silver mine. Very large CapEx plans. Metal prices were lower. The cost was higher. We come back to that. We had also very good exploration results. In parallel with the Q4 results, we also published our exploration records for 2011. If we look at the earnings trend, it's turning negative, very much depending on the metal prices, which started after Q4. You remember, Q3 ended with the governmental crisis in Southern Europe. The metal prices went very sharp down in the beginning of the quarter and have been gradually trading upwards. In the end of the quarter, it was good. It has continued in January and February so far to very healthy levels. If we look at the market in general, we know that both zinc and copper are dependent on the demand situation in the global construction and automotive industries.
If we look at the growth numbers in Europe and the U.S., to the left, we can see a very strong improvement of the very bad market in the U.S. As you can see, we are up to a flat level on a low construction level. We are on level with the previous year, and it's going upwards. As we will see on the car industry, we think the U.S. is moving in the right direction and fast. Europe is around zero, coming not from such a dramatic negative situation after the Lehman Brothers crisis and the 2008-2009 period. To the right, we see China, where the construction industry is somewhat lower, but still on a very high growth rate. This is, of course, the driver of the demand of copper and zinc in the world.
Apart from that, we have the car industry, where we have the fourth quarter to the left and the full year to the right. You can look at the U.S., which was already, or for the full year, on 10% growth in the car industry, but where the fourth quarter was over 15% year-on-year growth. I think the car industry in general is growing very much. China has a lower growth rate and coming from very high growth rates. Here we see China continue to produce cars at a very high level. The fourth quarter ending was somewhat bleak. Even Japan, with a big negative number on the full year, had a positive fourth quarter. The car industry, if anything, is improving and improving from actually a good level. What happens now when the demand is going well?
As you know, the story we always tell is that the big mines in the world have difficulties to meet the growth in the population of the big populations in China and fast-growing nations. What we can see here is, first of all, the clear decline in the beginning of the quarter. This is a quarter average, so the average is clearly lower. We can see that so far in the first quarter, it's higher. We can also see, if we look at the blow-up of this period, that we have a positive trend since the beginning of the third quarter. If we do the same analysis for copper, it's a very similar pattern that the copper prices fell quite dramatically the days before the Q3 endings. Then we have seen copper coming back, and you see the average is a lot lower in the Q4 compared to Q3.
You also see that the beginning of the year has been going in the right direction. On smelter treatment charges, we have a very uncertain situation when it comes to the benchmark negotiations for 2012. I think of all the experts, we have a 50-50. Some things I think are going in a positive direction and some in a negative. What we know, though, is that the treatment charges for zinc, as we speak, are not very good and certainly not in Q4, when it was also impacted by the price escalators and the price adjustments. Copper treatment charges have been a lot better. More important than TC is the value of all the byproducts and the free metals, which have contributed well, in particular in the copper smelters. Metal premiums, not a too different or dramatic development.
If we see our increasingly important precious metal, silver, where we are building a lot of capacity in Garpenberg. As you saw of today's press release, we are investing in silver recovery from the zinc smelters, in the zinc concentrates in the world, as well as from our own mines. The value of the silver is too big to leave in the tailing. This investment is going to take out more of the silver in the copper zinc counts than we have today. Positive development on zinc prices over time, even though over the year from the peak in silver, it has gone down. In gold, it's also close to all-time high, or at least on very good levels. The lead prices are tailing or similar to the zinc prices. If we look at the business areas first, this is from our Maurleden mine.
We have mine production in copper to the left, a quite flat development. We had a slightly lower production in Aitik, but we had good contributions from Boliden, where Maurleden East contributed very well to the copper production. To the right, we see the zinc, where production numbers, or production was good, but we had a quite sharp fall in metal content. The reason for it is, as we have said, quarter after quarter after quarter, that a mine cannot consistently be producing over the ore reserve average. Now we are seeing the effect that we are coming into more normal grades. The mine's financial development followed this curve, which has a big impact, of course, of the accrual of SEK 125 million, but also of the high cost and slightly lower production, but certainly the metal prices. On the full-year result, we are showing the results by unit.
As you can see, all mines have a quite flat development in spite of the fact that we have lower metal prices. Aitik has been producing much more. As you remember, after the second half, we came into lower grade areas with our production. Higher ore production, but lower grade. That happened basically in June, July time. A flat or slightly positive development. Boliden coming up, Garpenberg coming up as well, and Tara slightly down. All in all, together with the accrual, as we said, SEK 125 million, we see a slight negative on the year-on-year. On ore reserves and mineral resources, I think we can go through all of them. Basically, the good news here is Boliden area and the rest is fairly good.
In Boliden, it's a particularly exciting situation because those of you doing NPV calculations, you know that for a relatively short living or life of mine situation, good exploration results there will have a very big impact on the NPV because that increased production is coming relatively soon in time. Also good to know is that the reserves or the resources that we have identified in our exploration in Boliden are not deep, deep down, but they are more close to the center of the mine and rather up than down and of very good ore values. Renström is the big winner this year. Renström actually has the highest ore value of all Boliden's mines. A 30% increase in mineral resources in Boliden area, mineral reserves up to 10%. Renström and Kristineberg, both of them have enjoyed very positive developments here. Resources in Aitik and Garpenberg have increased.
We have a slight decrease in Tara. We have spent SEK 280 million on exploration, almost a little bit more than half on near site or near mine exploration, and 40% in field exploration. We have drilled 190,000 m diamond drilling compared to 140,000 m the year before. A very active year in exploration. The graphs here, as you can see, Aitik, good development of mineral resources. The reserves are slightly down. Boliden area, certainly a very strong development. For those of you not being familiar, the black line is 10 years of current production rate. The three bars are the different levels of ore reserve and mineral resources. The light gray here in Aitik demonstrates that could that be turned into reserves, we have a long, long mine or resource to be producing from. Boliden area, good development on both resources and reserves.
We are also increasing our production rate very much now with Maurleden East. We have also expanded production quite a bit. Garpenberg, solid development. I think this year is nothing much to say. We have a slight decline in two of the bars, and the third one is increasing. I think it's pretty much we have replaced what was produced. Garpenberg, with the very big reserve we have right now, is not the priority number one. It has been more to find what we find more in Boliden and Tara. My dream, of course, would be to see Tara coming up. We are not doing that. I think it's still a good result that we have a very small decrease in the ore reserve. We have filled up almost as much in the reserve as we produced.
That is, even though it's on a decline, which we have to expect to continue, it's a positive development. In smelters, the dotted line is a rolling 12-months curve, good level. We had a slight decline because basically of a very strong finish of last year. The solid lines at the bottom are the quarterly results with and without process inventory revaluation. We prefer to look at the dark blue line here. We did 326 compared to 530 in Q4, and we did 356 in Q3. A solid result, we think, from the smelters. We have prioritized electronic scrap production in Q4.
Therefore, the old Kaldo furnace, what we call the lead Kaldo, the one where we previously have been doing both lead and electronic scrap, have prioritized heavily electronics in order to accommodate the deliveries we are now taking on, the increased material flow for the new Kaldo furnace, a new Bure project, when that starts in this quarter and be in full production next quarter. We have prioritized that and done very little lead. When Bure is on again, we are going to take up the lead production more in the old lead Kaldo. We had lower metal prices. Treatment charges have been so OK. Premiums are OK. All in all, I'd say that the copper terms are good. The zinc terms are quite difficult. High volumes and prices of byproducts.
Sulfuric acid has continued to be a strong product, and we are earning a lot of money on sulfuric acid right now. The expansion in Rönnskär on electronic scrap is on plan. Production on copper, as you can see to the left, quite flat, but with a good mix change with more electronics now when we utilized the old Kaldo only for electronics. We can test now all the material feed system for the new investment in the fourth quarter. A lot of that has been commissioned already. We're preparing step by step for the increase when the new investment is up in full production. To the left, we see the zinc smelters. In both of the situations, basically in Rönnskär, in Kokkola, and Harjavalta, we were exposed to the strike, which took some time in Q4. Else on that, it's a smaller deviation.
I think you have most of the important things. As you can see on this graph, we have a mixed picture. The most obvious is that Rönnskär to the right here has a very strong development. Kokkola to the left here is having a quite negative deviation. It's basically because of metal prices and treatment charges. The silver recovery investment that we also introduced today is something that we have been planning for several years. It's depending on the zinc concentrate market in the world having an increased silver content. We have today no ability to extract silver in our zinc processes. Some of our competitors do. We think that increasingly over time, with a higher level content of silver and with high silver prices, this investment has been planned. We have been doing initial steps.
We are right now, and in the previous year, working on an investment step we haven't been talking with the market about, which is a sort of a preparation for this investment we took today. EUR 27 million invested. We're going to be in production in the second half of 2014. It has very good returns. We believe this is a very good investment. On the expansion projects, else on that, Aitik continues. We are up towards the 36 million tons. As I'm going to say, we have a rebuild going on right now in the beginning of the year. A little precaution there. Basically, that said, we are on the plan. It's no problem. It's continuing. Rönnskär is coming in production this quarter. It's ramping up now. It's going to be in production next quarter. The gold tellurium mine will start in the middle of the year. Garpenberg 2014.
A few words of each here. The ramping up continues. Refurbishments in Q1 2012 of one of the crushers. If you remember what we said after the third quarter, we said that the reliability, the availability of the crushers are much improved. The maintenance cost is far too high. Now the production is not hampered by the crushers. The material cost and spare parts and so on is costing too much. Therefore, we have, together with our suppliers, prepared a quite big rework of a snag list of many small things, but certainly a couple of bigger changes that we need to do in order to get the maintenance costs down. The first crusher we do now in January, February, four weeks. The second one is the crusher down in the pit. I got the question before coming here.
I said that that one will not have any big impact because so much less of production is happening down in the pit now and one or two, three years from now. I think the more the SEK 50 million, was it SEK 50 million we said, is going to cost the rebuild here in the first quarter will have a very marginal effect when we do the in-pit crusher in the summer. Kankberg, this is what the mine will look like or the developments will look like at mid-year. I think we are ahead of schedule when it comes to the developments. We are probably going to start slightly ahead of the project plan when it comes to the ore production. We're going to stockpilot. We're going to start the leaching around maybe a little before the mid-year.
On the other hand, the tellurium extraction is going to be in the end of Q3 or beginning of Q4. I think our guidance before start in the middle of the year is very relevant. I think that's what we continue to say. Part of the project is ahead. Part is slightly after the half year. CapEx SEK 475 million, start mid-2012 is all the stories we have been talking about before. On electronic scrap, basically all is already said. We are ramping up now. We took on the 18th of February. Did we forget the little piece here? I had planned to show you on the 18th of January. We had the black copper. We had the first metal coming out of it. It's a beautiful piece. I forgot it up there. OK. It is in production. It's, however, low-scale production in the beginning now.
We are working with the trimming in or ramping up. I don't think you should expect any big value in the first quarter. In the second quarter, we plan to have the full or at least close to full impact. This is a beautiful picture of the 18th of January. I got it in the morning there. It's our colleagues. They are looking out there when we are pouring out melted metal for the first time. It was somewhere 3:00 A.M. in the morning of the 18th of January. Garpenberg, February 2012. Underground developments are going very well. We have the shafts drilled down to - 1,200, both personnel shaft and material or ore hoist. It has gone very well. We are smack on plan there. Really, the hoists and all of that underground infrastructure, the rock work will finish probably in the first half of this year.
It's really happening a lot now. We're spending a lot of money. We had the environmental permit. It happened as we had planned, and we have got it. We started the construction of the new concentrator right there. I showed the board earlier today a picture of all the construction equipment is on site already. It's happening, and all in all, the project is on plan. With that, Mikael, if you can continue.
Thank you, Lennart. On a little bit to the financials. As you can see on this summary page, I have circled in maybe the most important numbers. One is the total profit for the year, excluding the process inventory revaluation. We ended up at right around the SEK 5 billion mark, which is slightly above what we had last year. You then also see the quarterly number of SEK 991 million, a little bit further to the left. The other number that strikes out for the year is the investment number of SEK 4 billion, which is right on what we told you beforehand that we were going to do. We ended up by a little bit faster than the end of the year. We ended up on exactly the SEK 4 billion mark as well.
You then also see that the gearing, and I'll come back to that, is up to 29%, which is exactly in line with the increased investment that we've had in the last quarter. Now, if you start looking and comparing what we have, we will compare this quarterly result. We'll compare it both to the fourth quarter of 2010 and the third quarter of 2011. If we start with Q3 2011, you can see that the metal prices that are down, as you saw before, somewhere between 15% and 20%, they contribute roughly SEK 200 million to the result. The metal prices do. The hedge helps us back with about SEK 147 million. The circle here is actually on the wrong place, as you can see. Then we have a positive help from the currencies that helps us with about another SEK 100 million.
Then we have a cost increase of SEK 178 million. This is partially due to seasonal effects, but partially due to other issues that I'll come back to. We'll compare a little bit when we also look at the Q4 numbers. Down in others, in that SEK 119 million number you see in there is the SEK 125 million provision for reclamation that was spoken about earlier. If we then look over on the comparison to last year, you see that we have a negative volume effect of SEK 199 million. That is mainly due to the lower grades, as also been spoken about before, that contribute down to the negative volume effect. Prices and terms here are down SEK 340 million. You can see that's partially based on base metals down. Precious metals are up. That mix still gives us numbers.
Once again, we're getting some of that back in the hedges. The currency effect is SEK 33 million, which is roughly close to zero if you compare year on year. You have cost increases of SEK 69 million on last year. That might not seem as a very big number. Those of you who were around a year ago will remember that Q4 2010 was also a high-cost quarter. This is not a particularly good number. Where do the costs come from? I've taken out here just a sense of where the SEK 69 million come from. You can see clearly that it's the energy and external services that contribute the largest part to the increased costs. You also see the capitalized costs, or the part of the cost that is capitalized, is also going up because we were doing lots of waste stock removal in the fourth quarter.
That comes into that number. Why is this happening? It's happening partially because of high inflation. We've been working our numbers up and down to have a sense of it. It's pretty clear that we, especially in the mining side, are being hit by high inflation. There are certain areas, especially in energy, where you see inflation year- on- year of 20% or even more. On certain chemicals that are linked to energy, you also see the same 20%. Other chemicals, you will see a more modest number on. You also see certain other mine, particular items like the tires that are also up close to 20%. If you mix this all in all, you will see a number that is maybe in the order of magnitude of 8%. We are having a high-cost inflation environment that we are working with.
We're working to try to be as efficient as possible and try to make sure that we don't hit too much of this cost. There were other effects as well. We did have staff up of the Kankberg gold mine. We've taken cost for the Kankberg gold mine already in Q4, even though production is starting only in terms of mine production only in Q1 now. As you heard before, in terms of actual metal production only later in the year. We do have cost overruns in Aitik. We should not try to explain that we don't have. It's linked to the crushers. It's linked to the conveyor system. We have initiated actions. We have already done certain parts.
As Lennart said before, there will be more actions taken during the first quarter, including a rebuild of one of the crushers to try to make sure that we get a more stable position going forward. If you look at the cash flow, the number down on the whole year of 2011 you see is SEK 3 million, or basically zero cash flow for the whole year. Roughly half a billion Swedish negative cash flow in the fourth quarter. There are two numbers that I've pointed out here. You do see the big investment in the fourth quarter contributing to that with the SEK 1.355 million. There is also something that I'll point out just so I won't get too many questions on it afterwards. Paid tax. We were in a situation where we, in 2010, had paid very little preliminary tax.
We had to pay that up in 2011 and then pay the normal preliminary tax for 2011. Therefore, the paid tax number is very high for the year. That doesn't have to do anything with increased tax levels as such. Capital structure, we have over the year increased the net debt from SEK 4.6 billion to SEK 6.1 billion. The gearing, as I said, up to 29%. Otherwise, I think that this is most in line with numbers that you've seen before. The net payment capacity is down SEK 2 billion, which is roughly in line with the increase of debt because our total lending programs are roughly the same, or borrowing programs, I should say. Lennart, will you come back and take us through the summary?
First of all, on the market, the price is holding up very much because of China's impact on the demand side, but also the mines in the world. I think that the macro worries that we saw, say, six months ago, have eased. How good is never easy to say. I think certainly that most metal analysts are of the opinion that it's looking slightly better now than it has been in the past. Metal prices are good right now. If we look at the result of Q4, we had the crisis in the political world that impacted the metal prices heavily in the beginning of the fourth quarter, but they have recovered since. In Boliden, copper increase in Boliden area has compensated a slightly lower copper production in Aitik. Zinc grades are down, but that is well communicated that we have been over the reserves.
Smelter byproducts are certainly helping and supporting the smelters. We have the provision of SEK 125 million. We have the underlying cost increase, as we said here. The numbers you, Mikael, were talking about, is excluding the personnel costs. Of course, it's the bought different bought articles or items. The expansion plans or projects are on plan. Going forward now, some of these things that we have communicated today are important when you model Boliden going forward. First of all, the electronic scrap. It's a very profitable project. We are right now in the startup phase. It's a big project. It's always difficult to say how a startup period is going to last. I think in May, when we have the first quarter reports, this is going to be the number one question because then we will have the startup period behind us. We should be at good pace by then.
Kankberg is also coming close now. The world's largest tellurium mine, 2 tons of gold or 1 ton of gold as an average. We start the leaching, which is taking most of the gold out of it around mid-year or slightly ahead of that. Then we have the last, including the sellable tellurium in Q4 coming out. That is, of course, an extremely exciting year. Garpenberg expansion continues. We are building. We are drilling. We are developing. It's going well. The Aitik, I think nothing of, basically, we are on the way to 36 million tons a year. We had a little bit of a weak situation in Q4. We have this rebuild. I don't think we should exaggerate that. We are in a good progress there. If we have said something which seemed very forward-looking, it was not the intention. With that, we can take your questions.
We most certainly can. We have the first question here in the auditorium. Please use the microphone to talk.
When it comes to underlying earnings in smelters going forward, the last two quarters have been roughly, was it SEK 350 million? Should we expect the same underlying earnings going forward, excluding the e-scrap business?
I think that copper smelters have a good situation. I think that the TCRC negotiations are never easy to be clear on. I think we are in a good situation there. I think that the zinc smelters are on a difficult level. Some people suggest that we are going to have even more difficult TCs for 2012. If you look at the cash cost of zinc smelters and look at where the realized TCs are, it's probably hard to believe that it could go so much lower than where we are right now.
I think particularly important is to say that the TCs, which are transparent and where you can read, is a relatively little part, or it's not a dominating part of the gross profit of the zinc and certainly the copper smelters. What is very important is the metal price development. It is a byproduct development, sulfuric acid and whatever else. Then premiums and TCs, of course, are also important.
Yes, that's why I'm asking. On the theme sulfuric acid, how does it look going forward with the contracts, yearly contracts?
I don't want to comment that. I think basically it's OK.
Yes, good afternoon. Oscar Lindström from Danske Bank here. A couple of questions. First of all, on the Aitik cost increases, could you be a bit more specific about the exact nature of the problem? If we should expect any further costs from these problems in the first quarter other than the announced rebuild, like the conveyor problems and so on, which you mentioned. Are these costs you could sort of claim any compensation for from suppliers or anyone else?
If we take the last one first, I think that the cost there is not going to be reclaimed. It's a true cost. We had a breakdown of a conveyor in the top of the big ore storage, which such things happen. Of course, it's not perfect when it happens when it's very, very cold. It was cold in the end of the quarter. That can happen. That was one. Another one was that we had the maintenance of the primary mill, which is coming on regular stages. There, we had one additional. I don't understand myself exactly why that happened. It's a lot of money. It piled up a little bit. We had more than normal cost. We have the cost inflation. We had a couple of contracts where we had to settle down or settle some negotiations. We paid out some money there. Part of it is one-off. Part of it is cost for the improvements we hope to see in the next year. We have the inflation, which we have to live with as it looks.
The production issues, you don't foresee them continuing into, should they actually?
No, we do not see anything that is of the nature that, oops, we have a different view on the future. Absolutely not. We had a not-so-good quarter, and we have the rebuilding in Q1. Of course, someone can be nervous about that. I do not think so.
Second question about on the smelter side. You sometimes have changes in your customer mix. Do you foresee should we be aware of any changes in customer mix other than relating to the Rönnskär e-scrap smelter Q1 2012 compared to 2011?
In particular, in the copper smelter, mix changes of some smaller, very rich materials can have an impact. It has always been the same. I think for remodeling, no, no change.
Finally, a broader question regarding emission rights. I have become aware that, I mean, now during this year, there's going to be information about your emission rights for the period 2013 - 2020. Do you see that having any adverse or positive effects on you? Or can you tell us a little bit about how we should think about that?
We can say that we have, of course, gone through. We have a couple of different emissions. There are a couple of different things which are negative to us. Are they big or are they fundamentally important to inform the market so that you sort of model them in? No, I don't think so. We are following this. Of course, the day when we are seeing that this is information that you would need, then we will come with it. It's going to be negative. We have a couple of negatives and additional costs, but nothing that we think are fundamental to our earnings.
Thank you very much.
I have one already. OK. Good afternoon. My name is Sylvie Wompel. I'm from Willys Risk Solutions. I was wondering if you could please elaborate a little bit on the provisions for the reclamation costs. What do they pertain to? Is that a reevaluation of earlier made provisions? How do you come up with the SEK 125 million?
We calculate the cost we see that we need to spend here in order to do a good job and be a good citizen and take care of nature around where we are. The background story is very simple. We have been identifying some risk elements. We go a couple of years back in time. We started a big evaluation. Of course, all mining companies have over years been in different positions and worked. We think that it's important to be proactive and not wait for legislation and things like that. We had a big review, which we have been doing. Last year, we had SEK 80 million zinc provisions. That was because we had a particular case there, which under evaluation had come a distance or a way forward. We took that. We saw, it's going to be more here. Are we going to tell the market? Yeah, maybe.
What shall we tell them? We don't know. We said it's better to do it. We have had consultants and our own personnel and everything in. We have been drawing the bottom line of this. That adds up to SEK 125 million more, which is going to be expensed in the next maybe three years or two years, I don't recall, two, three years. This is not a guarantee that it's not coming back. I think it's two numbers coming from the same very sort of fundamental overview that we have done.
Alexander Wilbag, Carnegie . Regarding sulfuric acid prices, a follow-up on that. Did you realize higher prices in Q4 than in Q3?
Say again.
Did you realize higher sulfuric acid prices in Q4 versus Q3?
Slightly higher, yeah.
Not very much higher. I mean, could you quantify it?
Answer. The total of the byproducts was improving, had an improvement. That includes the sulfuric acid.
The market now in Q1, how does that market look regarding demand and so on?
You turn this way here. No, we do not comment on the new things or forecasting metal prices or sulfuric acid prices or anything. The market is looking fair. I think the metal price or the sulfuric acid prices are high. Will they continue up? No, not necessarily.
Thank you. Also regarding the silver recovery investment in Kokkola, can you elaborate a little bit on the economics of that investment and what you see?
Yeah, we have basically the return of the EUR 27 million are very, very good. You should bear in mind that we have been doing hot acid leaching. We have been doing an investment which was primarily a preparation for the silver recovery of last year, and that did not have very good returns. It was necessary for some other reasons. It was also in the preparation stage. If you look at the EUR 27 million for your modeling, and I'm saying it's a very good return, I think you can sort of estimate what that might be. You have also some numbers of the silver we are going to extract out of it. I think you have the elements necessary for modeling. It's a good investment.
Regarding your large customers and the large users on the zinc side, the steel mills in Europe, how do you see demand developing there? I mean, during the last quarters and into this year?
is a very good question and a quite clear picture. Some of the steel mills in Northern Europe, we have 100% market share in those steel mills. We can see their volumes, and we know that or we see that their volumes have been coming down quite a bit. Volume going down, what do we do then? We have a surplus of metals which we could do something with. We call on our more marginal customers, industrial customers a little bit further away in Europe. We have had a very successful development in selling that material to other industrial customers. We are basically reducing our industrial sales a little bit, but not to a large extent. We are reshuffling our volumes between our customers, and we think that we are taking the position of some of the import metals that is not, that is excluded from Europe. We can fill up the needs with what comes free here.
Is this something which continues into this year as you see it?
You can say the January numbers are having probably a similar development. It doesn't look dramatically bad at all. It's a little bit the same development, yeah.
Just a final question regarding the grades in Aitik. You're at 0.22 in Q4. Is this about the level we should expect for the rest of the year, or anything to add to your previous guidance on that?
We are, as an average, lower than 0.22 in the next two years. It's going to be up and down a bit, maybe in the ballpark of that.
Thanks.
Or maybe in the ballpark of that. Not maybe.
Yes, hello. Gustav Sandström from Pensa Bank. One question regarding the smelter Rönnskär. I mean, the results from there were kind of weak this year as well as last year. Where do you see that operation going forward? What sort of costs or whatnot would be connected to if you decided to perhaps shut it down or parts of it?
Shutting it down would be a very costly exercise. On cash flow, not quite as costly because we free up a lot of metal in the process and so on. However, we are not believing that Aitik should be closed. We have not managed Aitik well for several years. We have a new management in place, or a new old management in place, some people who have been working with us in the past. We have a very committed team and a very good action plan there. It's not going to take Aitik to brilliant profits. We do not think that we are certainly not going to go cash negative. We will probably hover around break even at the levels of TCs and terms we are right now.
When the situation is improving again, we are going to, or we plan for a much better operation than we were having, say, two years ago. We are well into that plan. It's going well. Of course, it's one step forward, and then the terms are taking us negative. It looks good from the internal point of view. Terms are difficult.
All right. One question regarding the ore reserves at Boliden area. It looks to me like the grades have come down, especially in the zinc. How much of the ore reserve increase is due to actual ore findings, and how much is due to perhaps lower cut-off grade?
It is new, basically. It's new ore. It's not the price. You know, in the VMS deposits in the Boliden area, they are sharp-edged. It's not at all like in Aitik, a different long-term price. We'll change the cut-off. It has a similar effect in the underground VMS, but far less. This is new exploration results.
All right. Thank you. That's all my questions.
Before we turn into the phone conference, we have two quick questions that have come through the mail. First one is, what's your view on the consolidation in the mining sector? Recently, Glencore and Xstrata announced a merger. Could this be the start of further consolidation in the sector?
I think there is a lot of money in the sector. There is a lot of interest in M&A activities. As we have seen in the past, say, 18 months or something like that, it's very hard to pay the premiums that seem to be required in order to get acquisitions done. In the case of Xstrata-Glencore, it was a merger, basically a non-cash deal. I think that it's not going to, it's nothing new. It's a very big deal that is announced. The impact on us must be the question too, even if it was not asked. We think that further consolidation in our industry is to our advantage. We have discussed a lot. Both Glencore and Xstrata are very significant players in both copper and zinc. We think it is good. For us, it's not bad. It's good.
The second question is coming through email. Regarding e-scrap, how certain is the supply availability? Are you competing with China for this scrap?
We are not competing with China primarily, and the availability is good. Of course, we are stretching the supply market when we are doing the big investment and being one of the biggest and become the largest in processing e-scrap. We think that we will not have a difficulty to feed our new equipment with electronics, and we do not see at this point competition from China.
OK, thank you. With that, operator, I know we have some questions from the participants that are with us through the phone. Are you there?
Yes, ladies and gentlemen, if you have a question, please press 01 on your telephone keypad and you enter a queue. The first question comes from Mr. Christian Kopfer at Nordea Markets. Please go ahead.
Thank you, operator. Good afternoon. Firstly, on the cold winter that you also mentioned, do you see any impact from that in the first quarter?
I'm calling Aitik all the time. They have - 42 and - 45, whatever. They tell it's cold up there. Also, metal is freezing when it's going below 40. We have to take it a little bit easy. I think it's a slight risk of some impact. I do not think that we should plan for anything of significance. I think there is another factor, and that is the risk for different kinds of mechanical fatigue or breakdown is increasing. I have nothing to report on that. The cold weather is not good. We are used to it. No big news on that.
OK. On the e-scrap, nice to see that you are ramping up production there. Do you think you will see any impact on earnings during Q1? Would that happen first in Q2?
I think what we have said is don't plan on anything in the first quarter. It's going to be marginal, if any. We also have a lot of cost when we are ramping up. I think a prudent way to look at it is I don't think you should plan for a negative. I don't think you should plan for a plus either. In the second quarter, I certainly hope that we're going to have a good impact in a positive way.
OK, good impact in Q2, hopefully full impact in Q3 then.
Something like that is probably what I would model if I had listened to us.
OK, that's great. I just had a follow-up on the higher cost that you saw in the quarter compared to the third quarter. You mentioned that you had some external services and spare parts. You mentioned that it was divided in three categories. One was one-off and so on and so forth. Just approximately, is it fair to say that approximately one-third of this SEK 180 million cost was one-off, something like that?
The SEK 180 million is a little bit different because there are also seasonal effects in the SEK 180 million. Because Q3 has a seasonally lower cost because of vacation time, it's a little bit difficult to answer that question. If you take, I would say that if you take on Q4 on Q4, you can say that most of the overrun was one-off effects.
OK, that's great. Thank you.
The next question comes from Mr. Julian Baer at SEB in Hilda. Please go ahead.
Very good afternoon to you. Can you hear me?
Good afternoon.
Great. I have four questions for you, starting firstly with Garpenberg and Tara. In the fourth quarter, mill rates were something like 10% below the Q3 level. Is that a temporary issue?
I think that Garpenberg certainly has been in areas with very high grades. I think that is not a temporary decline to some extent. Tara, slightly lower. What we need to look at is the ore reserve average. That is our guidance, as you know.
Yeah, I was looking more at the mill rate. The amount of ore that you're mining and processing seems to be down in both mines.
That is more of the normal variation. I don't think that is going forward. I think that's a little bit down. I agree, a little bit disappointing, but nothing special there, no.
OK, good. Kankberg, I think you mentioned that you are now putting the cost of that in the P&L. Will you continue doing that going forward? What is the operating cost for Kankberg?
Just to be clear on that, yes, the cost will come out there. We're also putting the same revenue for the ore that is coming up on ground. As of Q1, that should not be a negative. It should not be a negative from an accounting point of view.
OK, so you're going to recognize Kankberg revenues from Q1.
We will recognize the revenue, but there will not be any profits because we'll only recognize revenue similar to the cost as the ore is being stored. The profit is only recognized when the metal is produced and sold.
Understood. Overall, how do you expect mine cash costs to develop 2012 versus this year, assuming flat byproduct prices?
Was that a general question on all the mines?
Just on the mines overall, yeah.
I think what is going to impact is, of course, a gradual increase in production will be on the positive. On the negative, we have inflation, which you spent quite a bit of time on earlier, Mikael. Other than that, of course, we have the grade impacting immediately. There you have all the elements to calculate. What I would hope is that increased production in Aitik, and if our rebuilding or rebuilds are happening there, it should go positive for the cash cost in Aitik.
OK, that sounds quite good. We've heard from quite a lot of miners about general cost inflation. It sounds as if you're hoping to offset that with efficiencies. Finally for me, based on current prices, how do you expect net debt to develop over the next 12 months?
Metal prices?
Assume current metal prices are flat going forward. How do you expect net debt to develop over the next 12 months?
To develop? It's very much a function of the investment plan or the CapEx that we have communicated very, very, very clear. Maintenance CapEx on top of that has also been communicated clear. It's what we believe about the earnings, which I think most of the elements are well known, apart from metal prices. The question is really answered by what is our assumption on metal prices. I do not think that we have anything particular. You have the big tax payout of this year. We don't have that coming back next year. I am not aware, and I cannot figure out what would be of an unusual nature. I think all the elements are there to calculate the cash flow. That's it.
OK, if prices are flat, then what happens?
I don't know. I couldn't say. I think we are going to, no, why should I guess? I cannot tell. I cannot say. Do you know?
Yes, they're going to go down.
Yeah, I think so.
Hello?
We have big investments going on here. The gearing will, I don't recall.
I think the question is a bit difficult because flat metal prices will be, is it from today or from the average of Q4 or whatever it was? I think that you know the metal prices. You can model them yourself, and you know roughly what our investment is. That's the big unknown for you, and they've been communicated.
Yeah, I know it because I have it here. If it is for today's prices, it's going to be a good development.
Yeah, you know what I was driving at, which was really these issues to do with taxes, to do with how you see inventories developing on top of the other bits and pieces, the stuff that we can't forecast, but you have a feeling for. I hear the story between the lines there.
I think that on working capital, we had probably a little bit high receivables, probably a little bit high in the beginning of the year. We're going to stockpile in Kankberg basically in the second quarter. We're going to ship in the third quarter. There are some changes. Will that have an impact on the total group results? Marginal.
Great. Excellent.
The next question comes from Mr. Johannes Paul at RBC Capital Markets. Please go ahead.
Good afternoon. Thanks for taking my call. I just had a couple of questions for you. Firstly, at Aitik, on the refurbishment there, the SEK 50 million, was that CapEx or was that the impact on the EBIT at mine level?
It's a combination of some production loss and some cost for the refurbishments.
OK. Refurbishing the second cross of the impact will be more or less negligible in the way it happened?
Yeah, because that should not have any production impact. It's much, much lower. I said before it's marginal. I don't know exactly the split of it, but I think more than half of it is production loss. That will not occur in the second crusher because it's not as much pressure on that one as the one we're repairing now.
Great, thanks for that. Secondly, I just want to circle back to the silver concentrate that Kokkola is going forward. Could you just remind us what the pay-by-lead terms are in silver concentrate? Also, just roughly, are operating costs expected to increase, or is it basically just that CapEx spend that you have initially?
It's a CapEx spend. It's a big building. It's a lot of flotation and leaching and whatever else. It's a lot of equipment going in there in the CapEx. I think the concentrate, and when you talk about the lead time of new concentrates, it is not, we do not plan for new concentrates. It's basically the silver that we already have in the concentrates, but which are now put in the tailings. The majority of it is a net contribution of the silver value that we can extract tomorrow, which we cannot extract today. However, there are chemicals and electricity and a lot of sort of cost of production as well. Basically, it's not a different feed. It's to extract the silver we get in the feeds and increasingly get in the feed. Of course, when we see silver and we put it in the tailings, we don't like that at today's silver prices for obvious reasons.
On the pay-by-lead terms, Lennart, how high are they? How much metal in cost rate is payable? I think you quoted 25 tons annually of silver in cost rate.
Yeah, we have it in the press release. We have so many numbers today. I think so, yeah.
All right, great. Thanks.
It doesn't matter if it's payable or not because this is stuff that we have today. Some we've paid for, and some we get for free.
Yeah.
Great, thank you.
The last question comes from Mr. Perzlik from Citigroup. Please go ahead.
Hi, gentlemen. Two questions, if I may. First of all, on the recoverable silver loss, I was wondering if you had in mind trying to implement the same kind of recovery at other of your smelters, first of all. Secondly, whether you intended to sell the silver at spec prices or if you had already entered into hedging on this. The final question will be related to costs. If I understood right, out of the cost you faced in Q4, half of it is one-off. I was wondering if this share of cost was attributable to the cost offering at Aitik. Thank you.
If we take the simple things first, the hedging of the silver, we're not planning to do. Number two, or I'm going in reverse direction and you take the cost first and last. If we continue with the other smelters, zinc smelters after this one, we don't think so. First of all, it's very difficult and costly because of process technology. Also, we need in the feed mix that we are seeing us having, we do not need to have silver recovery on all the concentrates we're buying because we are buying some low silver concentrates. We are going to feed that into Aitik and to some processes in Kokkola, where we do not extract the silver. The higher silver cons are going through the new cycle. We think that this is making us very flexible, and we are basically done after this investment. Of course, the future will tell if the silver contents are going to increase very much, if silver prices are going through the roof, that could change. As we see it right now, it's not one of several. It's the one.
Could you please repeat the question on costs?
I was wondering if out of the cost offering you faced in Q4, out of which you said half was one-off, I was wondering if these one-off costs were entirely or almost entirely related to Aitik.
Yes.
OK.
Yes, the answer is yes. If you use the word almost, it's yes.
OK. That means that once the service Went out in the dorm. This should come off.
Yes.
There are no questions at this time. Please go ahead, speakers.
Okay, thank you, everybody. It's time for a short wrap-up. Lennart, if you have some final comments to make.
I think Boliden is in good shape. I think we have very exciting projects going forward. Q4 was not brilliant. It was too low production. It was too high cost. Partly it was one-offs, but I think we are in good shape. Thank you very much. Thank you.